Shanghai-based developer Sunkwan Properties has filed its initial public offering application to the Hong Kong's stock exchange.
The deal could raise about US$1 billion (HK$7.8 billion) and Sunkwan could go public as early as the second quarter, media reports say.
The proceeds will be used for financing construction costs of current property projects, and repayment of a portion of existing interest-bearing bank borrowings.
This came as debt-ridden small-to-medium mainland developers are rushing to launch IPOs overseas, because years of restrictive property policies in China have left them with few financing channels, and the coronavirus outbreak brought the property market to its knees.
Sunkwan, which mainly develops projects in the Yangtze River Delta Economic Region, ranks 79th among the top 100 real estate developers in China in terms of comprehensive strength this year, the developer says in the prospectus, citing data by China Real Estate Association, Shanghai E-House Real Estate Research Institute and China Real Estate Appraisal.
The developer started its first residential project in Shanghai in 2010, and has expanded its business to 14 cities in eight provinces and municipalities, across three core economic regions in the mainland - the Yangtze River Delta Economic Region, the Pearl River Delta Economic Zone and the Mid-China Core Economic Region - with a property portfolio of 43 projects at various development stages, as of February 29.
Sunkwan says the coronavirus outbreak has delayed its original construction schedule.
Sales in February were down by more than 50 percent of the original target, and collection of payment was down by about 20 percent of the target for the month.
Revenue surged by 470 percent year-on-year to 6.85 billion yuan (HK$7.50 billion) in 2018, but further only increased by 10.04 percent year-on-year to 7.54 billion yuan in 2019. The growth rate in revenue fell because Sunkwan expanded into Suzhou, where average selling prices of properties are lower than that in Shanghai. Over the past three years, nearly 98 percent of total revenue was derived from property sales.
Still, Sunkwan says it relies heavily on the real estate markets in the Yangtze River Delta Economic Region, especially in Shanghai. In 2019, around 60.8 percent of revenue from property sales was derived from property projects in Shanghai.
Besides, gross profit margin increased by 20.6 percentage points year-on-year to 51.5 percent in 2018, but then dropped by 10.7 percentage points to 40.8 percent last year, due to the expansion into Suzhou.
Net profit tripled to 154.55 million yuan in 2018, and further climbed by 42 percent year-on-year to 219.53 million yuan last year.
Its net gearing ratio, a measure of financial leverage, dropped over the past three years, but was still higher than the industry average.
The net gearing ratio decreased by 359 percentage points year-on-year to 325.9 percent in 2018, and further dived by 207.1 percentage points to 118.8 percent in 2019. However, it was still higher than the average net gearing ratio of 75.5 percent of listed mainland developers last year, according to Central Wealth Securities Investment.
And the company's cash was not enough to cover its short-term debt obligations.
As of February 29, total interest-bearing bank and other borrowings amounted to 6.27 billion yuan, among which 3.07 billion yuan, or 49 percent, will mature within one year, while it only had cash and cash equivalents of 1.15 billion yuan.
The company recorded negative net cash flow from operating activities of 38.5 million yuan in 2017 and 3.8 billion yuan in 2018, due to continued increase in properties development activities.
ABCI Capital acts as the sole sponsor.
